governance, political economy, institutional development and economic regulation

Posts tagged ‘CPI (M)’

Do Indian voters remain deeply aligned with caste, clan and community (read religious) interests, as reported in the ongoing state elections? Possibly, yes, they do. Continued allegiance to traditional identities makes sense, if new ones never had the chance to take root.

Industrial work was one such silo-buster, as is urbanisation. Both, have had a limited impact on India’s social profile. Large, organised industry employs barely 10 million people, or just two per cent of the workforce. The impact of urbanisation is still far too recent to induce a change in social behaviour. Migration by men, for work in the urban, informal sector, has done a lot to contribute to the urban sprawl. But it doesn’t let new urban identities take root, as families remain village bound.

Modi – disrupting the status quo

No surprise then, if the 657 political parties (many are moribund) that are registered with the Election Commission vie for existing group interests as vote banks. There are only two examples in the past three decades which go against this grain of vote bank politics. The BJP came to power at the national level in 2014 by disrupting traditional identity-based vote banks. In a powerful outreach to young, aspirational India, Prime Minister Narendra Modi provided the instant hope of jobs through a government which worked for them, not against them. This enlarged support beyond the BJP’s traditional vote banks — upper caste and bania groups.

Modi exults in the hard work and determination that enabled him to overcome his humble origins – chaiwala (tea server) – in status quoist India. Mayawati – BSP and Mamata Banerjee – Trinamool Congress are female avatars of Modi.

It helped that Narendra Modi is himself from a backward caste. His is a rags-to-riches story. More important, he flaunts his humble origins and makes a virtue of his struggle to make good. More conventionally, he publicly dons the mantle of the selfless “sevak”. Anybody in the audience could be him, if they only had the gumption to succeed.

AAP – the new “Left”

The Aam Aadmi Party had similarly disrupted traditional identity politics in December 2014. It fashioned a winning alliance of the urban poor and neo-middle class against the corruption of elites in the Delhi state election. This anti-establishment, anti-corruption model is now facing a test, for its resilience and appeal, in the rural settings of Punjab and the BJP stronghold of Goa — both of which are “rich” states.

Its a tough world out these

Like the Congress during the post-Independence period, Mr Modi’s BJP is shaping a new India. It is an India that recognises today’s harsh international realities. First, unlike the rosy expectations of the 1950s, foreign aid, as an instrument of change, is dead. Economies need to fund their own development, by borrowing from the market or collaborating with foreign investors. This requires governments to bend before those who have the surplus capital; ship up to strengthen their own economies or continue to lag. Second, the consensus of the 1980s, that markets could substitute for the State’s inefficiency, is less credible, particularly after 2008. Strong states seem inevitable, albeit exercising judicious restraint while regulating markets.

A Nobel for the Communist Party of China?

For lifting more people out of multi-dimensional poverty that ever before; for adapting ideology to market realities and for standing true to their national objectives, the Nobel goes to …….

China has been the most successful economy, post 1990. It deserves a Nobel Prize for overcoming massive poverty and low levels of human development to become the factory of the world. It accounted for 1.5 per cent of world GDP in 1990 — the same as India. Since then it has cornered more than a fifth of growth in world GDP. By 2015 it accounted for 15 per cent of world GDP and has liberated nearly 300 million people — almost as many as the population of the United States — from poverty.

The Chinese story is of a single-party-managed mega-nation. By mixing market principles of merit and competition with the political energy of a proactive state, it has fashioned a massive politico-industrial machine. China has little patience with the effete romance of liberal idealism. Theirs is the classic hunter’s approach to life — smart strategy matters more than social ideology for filling your belly and remaining stronger than your adversary. This approach resonates in a world where persistent vulnerability to poverty; falling real income and increasingly skewed income distribution clouds even the rich world.

Where is the leadership in India?

Reverence for the absent trumps concern for the living, for gathering votes, in mystical India

Mr Modi’s world is that of realpolitik. Performance and outcomes matter the most. In contrast, the other national parties seem dated. The Congress — once a people’s movement, albeit led by professionals — is dormant. The Left is trapped in ideological echo chambers, seemingly unaware that organised, permanent workers are a diminishing vote bank. That economic forces have moved value addition beyond the spatially focused, integrated work areas, of the industrial age. The Lohia movements of the late 1970s rallied the backward castes into regional parties. But these lack vision, credibility or sustainability, beyond their narrow vote banks. The dalits have been transactional in their support for parties, although Mayawati has tried to substitute the Congress with a rainbow-style coalition. Muslims remain boxed into a defensive stance, perpetually seeking the status quo rather than transformation.

Where then do we turn to for leadership in India? The BJP is a clear and credible option. The mantra is that the government must focus on economic inclusion and social inclusion will follow. To take a practical example — higher government revenues from a more efficient tax regime can enable transfer of universal basic income to the poor and marginalised. This neatly avoids the clunky and inefficient option of physically providing cheap goods and services to the poor and caste or community-based support for the marginalised. It may also reduce corruption significantly by around one per cent of GDP.

A new social compact – trade entitlements for opportunity

The existing social compact between citizens and the State should be reworked. Will citizens be ready to give up their entitlements and de facto freedoms, in return for the State providing more economic benefits — security, macroeconomic stability, jobs, infrastructure and access to healthcare? With money and smartphones in their pockets, people — including the poor — will be able to shape their own societies, without being clouded by the past seven centuries of civilisational shibboleths dumped on them. Can Mr Modi get past the elites who benefit directly from the status quo? 2019 will tell.

Populism, buttressed by dodgy economics, has become the fashion statement in politics. Last year, the Union government approved handsome “real” increases in government salary. There was little justification for doing so since the government salaries were already fully indexed to inflation and the largesse couldn’t have been justified as a reward for higher productivity.

The default justification was that more money in the hands of government employees would kick start a virtuous circle. Higher demand for goods and services would lead to expanded supply, more jobs and just possibly, more income for the rest of us.

AAP disrupts the cozy status quo in Delhi

This week, the Aam Aadmi Party government in Delhi, used similar tactics to grab eyeballs on Independence Day. Evoking the high moral stance of re-distribution of wealth and the economic principle of boosting demand as justification, the government declared massive increase in the minimum wage. In effect, it imposed a “living wage”, for workers in Delhi.

The impossible dream of “mandating” the end of poverty

The concept of a “living wage” — pegged significantly higher than the minimum wage — with an eye to decrease poverty has been used in over 100 urban jurisdictions in the United States since the late 1990s. It has also been used to set the national poverty level in India. But it is pegged at very low levels.

In Delhi, chief minister Arvind Kejriwal has proposed that the minimum wages of unskilled labour will be increased from Rs 9,500 to Rs 14,000, semi-skilled Rs 10,600 to Rs 15,500 and for skilled Rs 11,600 to Rs 17,000.

The hike seems unreasonable given that the minimum wage in Delhi is already 35 per cent higher than in neighbouring Uttar Pradesh and 72 per cent higher than in adjoining Haryana.

Delhi is rich but…

It is true that Delhi is relatively rich. Its per capita income of around Rs 18,300 per month is the highest among the states of India and the top 10 metros. Consequently, there is a case for setting the “living wage” in Delhi reasonably higher than in the neighbouring states, purely on the grounds of equity.

The real issue is whether a 47 per cent increase is warranted and how comprehensively should the “living wage” be applied? If it is applied just to the establishments governed by the Factories Act, then it is little more than populism. There are only around 8,000 such factories in land-hungry Delhi and employment in them is static.

If the intention is to enlarge the coverage of the “living/minimum wage” to all registered shops and establishments, which employ around 20 per cent (one million) of Delhi’s five million workers, then the economic consequences can be more substantial.

Mandated wages hurt business and make it shift out

Photo credit: blogs.ft.com

The negative impact will be felt in price-sensitive, low value-addition segments like clothing, food and household goods, where higher wages will hurt business profits. More importantly, will a similar “living wage” follow for the one million workers in the informal sector — household help in rich and middle class homes and in unlicensed small establishments? If so Delhi’s privileged elite and wannabes may have to look for a lifestyle change – let the ayah go and manage their own babies; cook for themselves or use an app to order in; make their own beds; wash and iron their own laundry and learn to use a vacuum cleaner. And what of the ubiquitous car drivers and guards who lounge around the front gate of Delhi homes? Will the well-off opt for Ola and Uber instead?

Poor enforcement can make mandated wage a sham

Mandated high minimum wages, far above the market rate, encounter three problems. First, enforcing payment of the mandated wages depends crucially on clean, clever and consistent regulation. In its absence, it encourages the petty but crippling, corruption of “inspector raj”. Enlarging the scope of inspector raj in Delhi, even as it is being diluted in Rajasthan and Telangana sends the wrong message to investment for increasing jobs and private sector growth in Delhi.

High wages result in loss of unskilled jobs

Second, studies from the US show that the benefits are not uniform across the entire spectrum of workers. On average, unskilled workers lose the most from a high minimum wage because employment declines even as a smaller number of workers, who remain employed, benefit from high wages. Mandated wages rarely benefit skilled workers. Governments tend to be conservative in fixing the differential for skills. Delhi provides only a premium of 21 per cent, or `80 per day between unskilled and skilled work. The market premium is already between 75 to 100 per cent. A mason gets twice the amount as his unskilled worker — often a woman, who does the manual work.

Third, pegging a price for labour far above the market rate increases the fiscal burden. This happens directly when government salaries are needlessly enhanced. But it also hits the government budget indirectly, when applied to the private sector. Higher the mandated wage for unskilled work the more attractive it becomes for migrants. With open borders, no control on migration and the Delhi government committed, rightly so, to provide a basic quality of life for all — free water, free medical care, free education, cheap electricity, improved toilets and paved roads — the resulting fiscal impact can be crippling.

Immigrants reduce the market price of unskilled labour

One way of ensuring that market wage rates remain aligned with mandated wages and are not beggared by competition from in-migration, is to licence city workers, as in China. But it is difficult to do this effectively in a governance environment of pervasive corruption. Licensing is a one way street to inefficiency and corruption. If government land cannot be protected from encroachment by the mafia, there is little hope of implementing an equitable worker licensing regime. Railway stations are a good example. Try getting a licensed coolie to carry your bags at the stipulated rates and you are more likely to miss your train.

Test the viability first in government contracts

The high salary of unskilled government workers already provides a wage floor. But the incremental numbers employed are limited. The trend, since 1990s when the government adopted the practices of “new pubic management”, has been to outsource non-core services i.e. cleaning, canteen, security and office support. Worker productivity clearly increases under private management. But there is insufficient evidence that the wages paid to them reflect this higher productivity. The apprehension is that the workers will suffer from price competition to get government contracts.

This is a perverse and unintended outcome. Tightly regulating the private contracts that are funded by the government can ensure that the mandated wages are passed through to workers. And contractors do not corner the wage increase. This is how the financial viability of the enhanced wage rates should be tested before imposing them.

But there is little point in cultivating a small, handsomely paid labour “aristocracy”, as the CPI(M) did, whilst throttling investment and employment.

Adapted from the author’s article in Asian Age August 19, 2016 http://www.asianage.com/columnists/how-viable-are-hiked-wage-rates-333

Disruptive innovation (DI) is a force multiplier in business and technology. Value creation is all about getting there ahead of the competition. DI annihilates the competition, not by doing the same things better but by doing them differently, thereby changing the rules of the game. The recent greats in this line of business are Steve Jobs, Bill Gates and Mark Zuckerberg.

The Mahatma and more recently Kejriwal, are our home grown disruptive innovators in the business of politics. Kejriwal’s tactics are uncannily Gandhian. Ram Guha would be well advised to jeep a close eye on him. A squeaky clean record based on public service; deft management of a mass outreach campaign and tactical choice of public interest issues. Whilst the two “big bulls” -BJP and Congress, are going hammer and tongs knocking each other out, Kejriwal is coasting to what is being rated as an outstanding electoral debut in Delhi. Erstwhile Aam Admis and Aurats who deserted him along the way, must be eating their hearts out and cursing their lack of political foresight.

Of course Delhi is different and it is questionable whether Kejriwal’s tactics can be scaled up nationally. Still there are solid reasons why they could.

First, he is the only person in living memory who has stood up to Arnab Goswami’s harangue and given as good as he got. Last week Kejriwal cannily got onto a one-on-one “hard talk” with Goswami. When the time came for answering what the “nation” wanted to know, Arnab found only Kejriwal (as opposed to the usual circus of views to choose from) smiling sweetly at him, from behind his spectacles and pleading in an attractive, thin voice (similar to the Mahatmas) to please give him a chance to answer. Result knock out win for Kejriwal.

Second, Kejriwal is a babu with two decades of rich babu experience under his belt, and an additional decade now as a social activist, not a dyed-in-the-wool, clueless, “do-gooder”, like Anna. This makes him practical, administratively astute and flexible enough to be compatible with politics.

Third, there is a vacuum out there for sucking up the votes (young and old) fed up with poor governance and joblessness. Unfortunately, this vacuum exists primarily in urban areas and largely amongst the middle class who want to work their way upwards. This is quite different from the poor and marginalized in rural areas who are still acquiring the “escape velocity” to be sufficiently aspirational enough to demand opportunities for self-betterment. They are yet to get beyond electoral gifts, like the NREGA and cheap food. Nevertheless, even the urban middle class accounts for around 120 million votes and (15% of the national vote). The key of course would be to leverage votes into seats through strategic alliances.

Kejriwal is likely to use Delhi as the testing ground for his brand before scaling up in 2014. He will also have to chart out whom of the two “bulls” he should support to form a government. One hopes he will not repeat the “historic blunder” of the CPI(M) in 1996 when it made itself irrelevant, by choosing not to lead the United Front national government. In the business of politics, when you get a chance, you have to play. It is only by playing that one chooses ones destiny. If Kejriwal chooses to “play”, as he must, he will have to keep his “young” flock of elected members in the incorruptible Gandhian mould, they are in today. Not an easy task, in the enticing “gallis” of Delhi.

He will need strong local collaborators in the states. The Kejriwal political machine may consequently look more like the Congress did prior to 1939; a coalition of regional forces and strong local leaders with a common brand identity. Of course there needs to be a good business reason for such political franchisees to hang together. Usually it is the future expectations from the brand value that keeps the flock together. The Kejriwal brand still has to be built.

The tool of self-denial (fasting) is passé. Irom Charu Sharmilla (Manipur) was on fast for almost two years against the Armed Forces (Special Powers) Act, but to no avail. More embarrassing was Chandrababu Naidu’s recent, short fast in Delhi and the subsequent desperate attempts by the faster to get someone to end the fast, so he could get on with life. Jagan Reddy’s competing short fast in Hyderabad got more press, but fasting as a political tool seems to have reached its expiry date.

Civil disobedience, Gandhi style, is incompatible with middle class aspirations. In any case the Indian State is so soft and yielding that beyond a short outburst of frustration (as in the Nirbhaya Rape case), continued agitation seems futile because the government looks even more helpless than the citizen. The favorite ploy of politicos and babus at parties, in plush Delhi homes, to which they are still invited, is invariably to play “victim” after the mandatory period spent listening to individual venom-spew or petitions, whilst usefully swiveling single malt all through.

Modi already occupies the “effective government” niche. Rahul is big on “religious inclusion and helping the poor”. This pushes Kejriwal into the boutique market for AAA concerns; urban jobs and livelihoods; succor from the land and slum mafia; social protection, especially for working women and children; targeted and speedy grievance redressal and the citizen’s need to have “reachable” leaders who live with the people they represent, whose families use the very same local facilities and who make a profession out of knowing their electorate.

Concrete steps in this direction would be AAP elected members to refuse government houses and the use of government cars and push instead for an allowance for all Delhi MPs and Ministers; once in power they keep the number of hangers-on, helpers and security at a minimal; expand outreach through social media and finally the adoption of a costed and feasible five year plan addressing no more than five key concerns of their boutique constituency. The “Bulls” pander to everyone and everything. Modi departed from this typically Congress strategy by not “appeasing Muslims” but got upped in the outreach war which projected it as exclusion, rather than even handedness. Kejriwal needs to focus his agenda for it to be credible.

Start-ups with rapidly expanding “top lines” face the temptation of selling-out to global players. The AAP will likely be offered the same opportunities, if it is not already being wooed. Gandhi was pragmatic in taking what comfort came his way but steadfast in his objectives. Kejriwal needs to measure up to high standards. If he manages to do so it would probably be a first for a babu. We wait and watch.